Chapter-IV:

Planning and
Decision Making
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The Planning Function

Planning involves defining the organization’s goals,

establishing strategies for those goals, and developing
plans to integrate and coordinate activities.
The process of thinking about and organizing the activities
required to achieve a desired goal

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Why do Managers plan?

At least four reasons can given:

provides direction to managers and non-managers alike
reduce uncertainty by forcing managers to look ahead, anticipate
change, and develop appropriate strategies
minimize waste and redundancy.
establish the goals or standards used in controlling

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Planning Types

 Managers use:
• strategic,
• tactical, and
• operational goals
 to direct employees and resources toward achieving specific
outcomes that enable the organization to perform efficiently and
effectively
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Planning Process

Step1 Establishing objectives

Step 2. Environmental Analysis and forecasting
Step 3. Determining alternative course of Action
Step 4. Evaluating the alternatives
Step 5. Select the best alternatives
Step 6. Implementing the plan
Step 7. Controlling and evaluating the results
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Foundation of Planning

Goals/objectives are desired outcomes

What is the difference b/n goals & objectives?, Goals & plans?
Plans are documents that outline how goals are going to be met.
planning is the process
Stated and real goals
Stated goals are official statement that organizations addressed
Real goals are what organization actually pursue
What are the university stated and
real goal in relation to class size? 05/30/2024
quality education?
Types of plan based on frequency of use

Single use plans

 They include: programs, projects, and Budgets
 Single use plans are those plans which have no more use after
objective is accomplished
Standing plans
 are ongoing plans that provide guidance for activities performed
repeatedly.
• Policy, Procedures, Rules

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Types of plan based on breadth

Strategic plans apply to the entire organization and

establish the organization’s overall goals
The process of determining a company's long-term goals and then
identifying the best approach for achieving those goals.

Operation plans encompass a particular operational

area of the organization
 The two plans differ in scope where the prior focus on broad issues
while the later the narrow term operations
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Types of plan based on time

Long term plans defined as those with the time frame beyond five
years
Short term plans cover one year or less
 Any time period in between would be considered as intermediate
plan
 Although this time frame is common organizations can use any
planning time frame as required

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Types of plan based on specificity

Specific plans… are clearly defined and leave no room for

interpretation
 It states objectives in a way that eliminates ambiguity and problem
with misunderstanding
Directional plans… are flexible and set out general guidelines
 Preferable when there is high uncertainty
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 Approaches to Goal setting

Traditional Vs. MBO

In traditional goal setting, top managers flow down through the organization and
become sub goals for each succeeding level
Clarity is lost as the goals make their way down from the top of the organization to the lower
levels
Turning broad strategic goals into department, teams, individual is not clear
Managers at each level define the goals and apply their own interpretations and
bias as they make them more specific.
EX. Achieving sufficient profits
Increasing market leadership
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Management by Objectives (MBO)

Management by objectives (MBO) is a method whereby managers

and employees define mutually agreed goals for every
department, project, and person and use them to evaluate
employee performance
MBO programs have four elements
1.Goal specificity
2. Participative decision making
3. Explicit time period
4. Performance feedback
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Contingency Factors in Planning
Three contingency factors affect the choice of plan:
 Organizational level
 Degree of environmental uncertainty and
 Length of Future Commitment
Managerial level Vs. Planning
Environmental uncertainty
Strategic
Planning Top Executives When uncertainty is high,
plans should be specific but
Middle level managers
flexible
Operational First line managers 05/30/2024
Planning
Planning Tools and Techniques

Techniques for assessing the Environment

3 techniques used
1. Environmental Scanning
2. Forecasting &
3. Benchmarking
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Planning Tools and Techniques…

Environmental Scanning-
- Companies that use environmental scanning have
higher performance
Competitors intelligence experts suggest that 80%
of what managers need to know about competitors
can be found out from their own employees,
suppliers, and customers
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Planning Tools and Techniques…

Forecasting-the second technique to assess

environment
Techniques
 Quantitative forecasting-applies a set of
mathematical rules when managers have sufficient
data
 Qualitative forecasting-use judgment and opinions
of knowledge
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Technique Description Application
Quantitative

Time series Fits a trend line to a mathematical Predicting next quarter sales based
analysis equation on 4yrs sales
Regression Predict one variable on the basis of Seeking factors that predict sales
models known variable
Econometric Uses set of regression Predicting change in cars sale as a
models result of tax change
Qualitative
Jury of opinion Average the opinion of experts Predict recruitment needs

Customer Customer estimation Determine types and quantities of

evaluation product desired
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Planning Tools and Techniques

Techniques for assessing the Environment

Benchmarking
The search for the best practices among competitors that lead to superior
performance
Steps in Benchmarking
Form a benchmarking planning team
Gather internal &external data
Analyze data to see performance gap
Prepare & implement action plan
Best Practice and best fit
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Techniques for Allocating Resources

4 techniques for allocating resources

1. Budgeting
2. Scheduling
3. Breakeven Analysis
4. Linear Programming
Budget is numerical plan for allocating resource to specific
activities
Revenue, expense,
capital expenditure
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Techniques for Allocating Resources

Scheduling
 The use of Gantt chart
 Time lined at horizontal and activities are arranged in vertical
 then, planned Vs. actual compared over time
Breakeven Analysis
Breakeven analysis is valuable for managers because it points out the relationship
between revenue, cost, & profit
BE is given as TFC
P-VC
Revenue, cost, and profit will be identified
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 Techniques for Allocating Resources

We use linear programming for outcome optimization

 It can’t applied for all resource allocation
 4S+2B ≤ 600
 2S+2B ≤ 450
Find a combination
Department Shoe Bags Monthly capacity
that bring optimum
outcome?
Manufacturing 40 20 600
Assembly 20 20 450
Profit per unit 18 10
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Contemporary issue in Planning
Today’s managers face the challenges of planning in the environment that’s
both dynamic and complex
Two planning techniques appropriate for such types of environment are:
Project Management and Scenarios Planning
Project Management is the task of getting a project’s activities done on time
within budget, and according to the specification

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 Project Management Process
Typical project work is done by project team
The project planning process
Define Identify Establish Estimate time
Objectives activities and sequences for activities
resources
Compare
Determine
Determine project with
additional resource
completion date objectives
requirements
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Scenario Planning

A scenario is a consistent view of what future is likely to be

Can be described as contingency planning i.e. if this event happens,
then we need to take these actions
Ex. What will happen if minimum wage rate increased by 75 birr/day?
The intent of scenario planning is not to try to predict the future
but to reduce uncertainty
Developing scenario planning can be considered as contingency planning
Planning tools and techniques can help managers prepare confidently
for the future
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Making Decisions
Managers will make decisions during the exercise of all managerial functions
Most decision making is routine
Making decisions Rationally:
Assumptions
1.Objective and logical
2.Decisions are made in the best interest of the organization
The role of Intuition
Decisions are given on the basis of experience, feelings, and accumulated
judgments
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The Intuitive Decision Making-Model

How common is intuition in DM?

Survey found that almost half of the executives surveyed used
intuitions more than formal analysis to run their companies

Val Experience
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c es i n i tiated 05/30/2024
si ng t
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Types of Decision

Structured and programmed decisions

Problems are straight forward
Problems are familiar
Decision maker goal is clear
Information about the problem is easily defined and complete
Ex. Student wanting to drop class
Customer return of purchase
Sexual harassment
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Types of Decision…

Why programmed decision can be straightforward, familiar and

easily defined?
Because program decisions are repetitive decision that can be
handled by a routine approach
3 Types of program decisions:
1. Procedure
2. Rule
3. Policy
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Types of Decision…

Unstructured and Non-programmed decisions

New, unusual and for which information is ambiguous or incomplete

Non-programmed decisions are unique and non recurring and involve

custom-made solutions

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Unstructured and Non-programmed decisions
Brainstormi

ng
Techniques Delphi Techniques
Heuristic
techniques Non
programme
d decision
making Nomi
nal G
techn roup
a l i t y iques

Qu
c l e
c ir
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Types of Decision…

1. Brainstorming Technique
 The brainstorming technique was developed by Alex Faickney
Osborn, who is called "The Father of Brainstorming."
The purpose of this technique is to improve problem solving by finding
new or creative solutions.
In a brainstorming session, five to ten persons sit together. The leader
of the group tells them the problem. All possible ideas are invited to
solve the problem. All the ideas are discussed and analysed.
Finally, the best idea is selected.
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Types of Decision…

2.Delphi technique
The group members interact with each other through modern tools like
video conferencing.
Questionnaires (list of questions about the problem) are also used to
collect information from the group members. Delphi technique gives very
good solutions for the problems.
This is because the group members are not influenced by one another,
since they do not meet fact to face.
The problems are solved quickly because this technique use all latest
technology for the group members to interact with one another.
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Types of Decision…

3. Nominal Group Technique

In Nominal Group Technique, the group members think
independently. Each person comes up with his own ideas.
This technique does not allow interaction among the group
members at the early stage.
Interaction takes place only after the ideas are presented by every
single member of the group.

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Types of Decision…

4. Quality Circles
Quality Circles was started in Japan in the early 1960s.
Quality Circle is a small group of employees from the same
department who volunteer to meet regularly in order to identify,
analyse and to solve problems about their work.

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Types of Decision…

5. Heuristic Technique
 In Heuristic Technique, decisions are made based on
experience, rule of thumb, common sense, etc. For e.g.
Companies sell their products on an installment basis
because they assume that people can pay product's price
regularly in installments rather than in one lump sum
amount.

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Types of Decision…
Characteristic Programmed decision Non-programmed decision

Types of problem Structured Unstructured

Managerial level Lower level Upper level

Frequency Routine Unusual

Information Ready, available ambiguous

Time Short Long

Goal Clear, specific Vague

Base of solution Procedure, rule, policy Judgment, creativity

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Decision Making Levels

Decision making can also be classified into three

 categories based on the level at which they occur.
Strategic decisions set the course of organization.
Tactical decisions are decisions about how things will get done.
Finally, operational decisions are decisions that employees make
each day to run the organization.

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Decision making conditions
Managers face three different conditions
1. Certainty 2. Risk 3. Uncertainty
Certainty- The ideal situation to make decisions
Risk- conditions in which the decision maker is able to estimate the likelihood of
certain outcomes
Uncertainty- when decisions are not certain about the outcomes and can’t even
make reasonable probability
estimates.

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Factors Affecting Decision Making
DM approach
Rationality
Types of Bounded rationality
Decision making
problems Intuition
Errors/bias
Structured and
unstructured
Decision
making Decision
Choosing best alternative
DM conditions Process -Implementing
Certainty -evaluating
Risk, uncertainty

DM style
Linear and Non-linear 05/30/2024
thinking